Sectoral Diversification Research Articles

Sectoral Diversification and the Banks’ Return and Risk: Evidence from Chinese Listed Commercial Banks

This paper investigates the effects of sectoral diversification on the Chinese banks’ return and risk using panel data on 16 Chinese listed commercial banks during the 2007-2011 period. We construct another new diversification measure, taking systematic risk of different sectors into consideration by weighting them with their betas and compare the results with those of more conventional measure HHI. We find that sectoral diversification is associated with reduced return and also decreased risk at the same time, which however, contradicts existing findings in developed countries and also in emerging economies.

Sectoral Migration and Industrial Diversification: Role of Behavior and Expectations

This paper explores the link between migration and industrial diversification. Economic theories of migration typically focus on wage differential across sectors as the primary explanatory variable. In this paper instead we focus on the behavioral aspects of the agents, which may lead to different levels of migration resulting in different degrees of specialization and industrial congregation. We analyze the related issue of industrial diversification in a two sector set up with one traditional sector which is technologically saturated and an upcoming sector where there is a lot of scope for technological improvements. It is the entrepreneurial nature of the agents, rather than the wage difference, that drives the migration which in-turn helps in technological advancement of the upcoming sector. In this context we compare the equilibrium level of migration and the socially optimal level of migration. The level of migration, and hence, industrial specialization or diversification, are decided not only by the behavioral aspects but also the expectations. Expectations and the optimizing behavior of the agents are crucial in deciding the final level and the speed with which economies reach the steady state.

The Dynamics of Geographic versus Sectoral Diversification: Is There a Link to the Real Economy?

We study the dynamics of gains from sectoral versus geographic diversification and relate economic sources to changes in those gains. We estimate conditional correlations between returns on the US equity market and 16 equity markets and 10 local industries from other OECD countries and find that the average correlation across countries has increased in relation to that across industries. We also show that this process is accompanied by increased alignment in the industrial structures across countries and an increase in the average conditional correlation of aggregate production growth across countries relative to that of disaggregated production growth, especially among developed economies. Thus, the increased benefits of industry-level investing across developed markets are reflected in the real side of the global economy. However, country-level investing should remain the predominant asset allocation approach in emerging markets.

Do Money Market Funds Require Further Reform?

The merit of further reform of money market funds by the SEC hinges on the extent to which runs on prime funds pose an investor-protection problem. Reformers assume that the many runs on prime funds in 2008 reflected rational inter-shareholder opportunism, but there is no evidence that retail investors need more protection from this. Notably, the non-redeeming shareholders of the Reserve Primary Fund were the only fund shareholders damaged in the runs on prime funds in 2008, and their avoidable loss amounted to just 1/3rd of one percent of their investment. Still, one-quarter of prime funds in 2008 had a mix of retail and (run-prone) institutional shareholders in the same fund. As the rest did not, this hypothetical hazard is unnecessary and the industry should act voluntarily to eliminate mixed-clientele prime funds. More importantly, now that bank-issued money market instruments have come to comprise half the holdings of the typical prime fund, the SEC should acknowledge correlated credit risk by requiring that prime funds practice sector diversification (in addition to issuer diversification). Money market funds should be made less important as financing arms of TBTF banks, not made more reliable as financing arms of TBTF banks.

Commentary

Given the current fiscal climate limiting both government and industry support for health research, philanthropic support of health research is increasingly relevant because it provides some of the critical "risk capital" that stimulates innovation, helps translate basic research findings into clinical applications, helps support the career development of investigators, builds new infrastructure, and helps fill key funding gaps. Unfortunately, because of the philanthropic sector's diversity and scope, it is challenging to track the sector's health research investments. The authors briefly review the landscape of philanthropic organizations, identify several success stories resulting from philanthropic investments, and finally underscore the importance of gaining more knowledge about the sector through purposeful data collection efforts such as those of the Health Research Alliance (HRA), a consortium of nonprofit funders of biomedical research and training. Recent HRA efforts of this type are highlighted in this commentary and described in detail in the report by Myers et al in this issue of Academic Medicine.

Expansion, Diversification, and Hybridization in Korean Public Housing

The emphasis in European contexts has been on the residualization and market orientation of social housing agencies. South Korea has, however, experienced an extension of public housing and greater sector diversification around different forms of provision that serve the needs of various types of household. On the one hand, a permanent public rental housing sector has been developed serving the needs of very low-income or vulnerable households. On the other hand, more diverse types of fixed-term rental have been produced for a broader range of income categories. This paper examines how and why these differentiated approaches to public housing provision and management have emerged. A particular focus is the changing demands on and roles of housing organizations, as well as the relationships between government, market, and civil sector organizations. The analysis identifies a particular hybridity in South Korean public housing in contrast to typologies developed in European contexts.

Latin American Company Strategies in the Financial Crisis

This article presents a conceptual basis for developing a corporate strategy to respond to a financial crisis, and an empirical examination of strategic moves undertaken by a number of large Latin American (Mexican) firms during the crisis and subsequent recession. A framework for thinking about this problem is the Cost–Revenue–Risk (CRR) view,1 which focuses on the firm’s costs, revenues, and risks. This framework is elaborated in the article, and then applied empirically to six companies in Mexico, looking at their responses to the crisis initially and after one year. In addition, the firms listed on the Mexican stock exchange are examined to see if the strategies used by the interview sample also contribute to performance of the larger group of firms—which they do. In the sample of listed Mexican firms, both sectoral diversification and cross-country diversification turned out to be significant contributors to explaining relative firm performance during the crisis.

Do Globalisation and Economic Cycles Reduce the Sector Inequality of Supra-Regions?

This research presents data accumulated to assist in the testing of the validity of assumed development conditions and relations. The world economy has reached staggered levels of development across the different continents throughout a long period in history. Geographical continental determinants in relation to the climatic and natural conditions across the continents, as well as natural re- sources, have remained more or less stable. And aside from these aforemen- tioned conditions, there are numerous internal and external factors - among others: the respective states social and political situations, their scope of involvement in the processes of international labour distribution, involvement in the globalisation phenomena and economic cycles - which influence the economy of a continent as a sum of its individual economies. Globalisation, as well as market mechanism principles, reflects the trend of stronger subjects to accumulate advantages at the expense of weaker ones (Smith, 2001; Kraft and Farek, 2008). On the other hand, globalisation is connected with processes which act to reduce the differences between the centres of wealth and poverty, and may contain potential to reduce the spatial dispersion and sector diversification of the continents. The process of economic internationalisation and globalisation has been gradually intensifying since the Second World War, i.e. in the 1950s, and

Sectoral Transformation of Turkish Free Zones

Serbest Bölgeler (SB’ler) 1980 sonrasında Türkye’nin ihracata yönelimini desteklemede işlevsel olmuşlardır. Bu bölgeler başlangıçta emek ve kaynak yoğun imalat sanayi ürünlerine yoğunlaşmışlardır. Zamanla, ülkede sanayileşmenin derinleşmesine koşut olarak SB’lerde de sektörel çeşitlenme gerçekleşmiştir. Bu çalışma, Türkiye’de SB’lerin sektörel yeniden yapılanmalarını incelemektedir. Analiz, Türkiye’de SB’lerin yurtiçi birikimi esas olarak ülkeye ucuz yabancı girdi temini yoluyla desteklediklerini göstermektedir. Ayrıca bölgeler, ihracata yönelik üretim faaliyetleri ile Türk sermayesinin küresel açılımına hizmet etmektedirler. Sektörel çeşitlenme açısından ise analiz sonuçları, düşük-teknolojiden ziyade orta-teknolojiye dayalı sektörlerin Türk SB’lerinde baskın olduğuna işaret etmektedir. Üstelik yüksek teknolojiye dayalı sektörler SB’lerin ihracatında giderek artan bir önem kazanmaktadır. Söz konusu bulgular bölgelerin, Türkiye’nin imalat sanayi üretimi ve ihracatı içinde orta ve yüksek teknolojiye dayalı sektörlerin payını arttırmayı amaçlayan yeni sanayi politikalarına entegre olduklarını göstermektedir.

The role of portfolio diversification in the hotel industry

PurposeThe purpose of this paper is to study whether geographic and sector diversification allow for a significant reduction in the risk exposure of a portfolio of hotel investments in one of the major tourist markets, the Italian market.Design/methodology/approachThis paper evaluates the benefits related to a Markowitz diversification approach for the construction of a specialised portfolio in the hotel real estate market. The portfolio analysis considers the degree of efficiency of each portfolio, the type of diversification adopted by a more efficient portfolio, the persistence of results over time and the impact of diversification constraints.FindingsThe results demonstrate that, while standard geographic and sector diversification allow for good results, the more efficient portfolios are more concentrated. The trade‐off is worse if some concentration constraints are established, but the portfolios identified are characterised by higher performance persistence.Research limitations/implicationsThe analysis only considers high‐quality hotels in the Italian market. Unfortunately, some information on costs is not as detailed as would be desired. The availability of a more complete database could increase the significance of the results obtained.Practical implicationsThe results are relevant for constructing all hotels' portfolios, like those managed by a real estate fund manager, in order to define the type and degree of diversification that allow for minimal risk exposure.Originality/valueThis paper is the first to apply the Markowitz theory to the Italian hotel industry in order to identify the best diversification criteria.

Diversification Potential of Structured Securities

Diversification has been a frequently stated benefit of structured securitizations. In the subprime crisis, however, CDOs (especially ABS CDOs) proved to be concentrations of risk. In this article, the author examines different diversification patterns of structured securities that were deemed beneficial by investors and finds that name diversification is largely ineffective and may even increase the risk of tranches. Similarly, factor or sector diversification in the pool may not have the anticipated effect. Positive effects are only achievable for senior tranches, and for mezzanine tranches, the risks may even increase. These results shed new light on the diversification potential of CDOs, which is important in terms of both risk management and valuation.

Empirical Survey of Attitudes and Perception of Professionals and Business Executives About Islamic Finance in Mauritius

This macro-oriented research work empirically surveys and investigates the views and opinions of senior and top professionals/executives in Mauritius. It is a landmark qualitative study which explores the idea concerning the feasibility to promote and develop Islamic finance products and services in a small-island, but rapidly developing country; the associated benefits of which have so far not been tapped by the latter. The methodology of this research, that is interview-based surveying, in essence revolves around gathering, reporting and analysing the views and feedbacks of different cohorts or groups of professionals/executives, based in Mauritius. These inputs dealt with a number of thematic issues (ten issues in total), which are all critically important to answer the research objectives and questions that were set out, at the outset when framing the purview of this academic work. The relevant work of many academics have, in the process of preparing this dissertation, been referred to inter-alia highlight the key trends influencing the development and promotion of Islamic finance, in other countries of the globe. The findings of this academic research, to a large extent, support the eventual establishment of Islamic finance products or markets in this Small-Island Developing State (SIDS). While evolving in Islamic finance will be a progression for its further financial sector diversification, this research critically highlights that due attention has to be given urgently if possible, to the building of specific Islamic expertise for Mauritius professionals, to be more competitive off-shore.

Overview of natural gas sector developments in Trinidad and Tobago

PurposeWith over 100 years of commercial activity, Trinidad and Tobago's energy sector has demonstrated significant growth and dynamism. This paper aims to provide a historical account of gas sector developments and seeks to decipher the motivating factors and key policy positions of the government.Design/methodology/approachA review of policy framing documents in the gas sector is conducted. These are juxtaposed with historical information on hydrocarbon production, level of foreign direct investment and State participation. The impact on the country's economy in terms of energy revenues and gross domestic product (GDP) is also examined.FindingsOver the period 1962‐2007, daily average hydrocarbon production increased eightfold to 800,000 barrels of oil equivalent due mostly to natural gas. Total energy revenues and GDP have grown significantly. Contributing factors include an evolving fiscal regime to attract foreign investment, strategic State investments, joint venture arrangements, monopoly gas transmission and merchant roles and an effective institutional framework. Government stewardship, market forces and private sector investment moulded the sector. Recent measures include revisions to the fiscal regime and sector diversification aimed at sustaining the industry.Originality/valueEnergy sector developments of this small island economy have largely escaped the purview of the mainstream academic literature. Trinidad and Tobago's energy policy has not been well articulated or documented, and this paper serves to act as a springboard for further studies which may provide policy direction for other countries.

Financial Crisis and Sectoral Diversification of Argentine Banks, 1999-2004

We explore the impact and evolution of loan portfolio diversification during the 2001-2002 Argentine financial crisis. Using a novel dataset that combines public information on the main activity of the largest 930 Argentine firms with their borrowing from each bank operating in the country during the 1999-2004 period, we find that banks did not modify much their loan portfolio mix as a response to the crisis, even though the econometric results point to a positive effect of sectoral diversification and lending to tradeable sectors on bank profitability and risk mitigation. Our results suggest that larger banks benefit more from diversification that smaller ones, and that the benefits of diversification are greater during the downside of the business cycle.

From home bias to Euro bias: Disentangling the effects of monetary union on the European financial markets

Following the launch of the Euro in 1999, integration among Euro area financial markets increased considerably. As a result, portfolio home bias declined across the European financial markets. However, greater market integration has generated a new bias: portfolio Euro bias, a situation where Euro investors tend to hold large proportion of assets issued within the Euro region. The first part of this paper presents an empirical analysis of the economic factors at play behind the switch from home bias to Euro bias. We find that decline in default risk and transaction cost are two key determinants of the rise in portfolio Euro bias. The second part of the paper goes deeper into the effects of Euro bias on Euro area bond and equity markets. We observe that both government and corporate bond markets revealed clear signs of strain during the recent financial turmoil. Our results also reveal that the risk-reduction potential from geographic diversification within the Euro equity market is lower than that of the Euro sector diversification.

Significance of segment structures in the Portuguese and Iberian property markets

PurposeA quite significant body of research regarding the effects of segment structures in direct property returns is available for the USA and the UK markets. There is also some research regarding the broad European context and for some individual countries, like Italy. However, this subject has not been specifically addressed for the Portuguese and Spanish property markets. The central aim of this research is the examination of the effectiveness of the main segmentation structures currently used in the Portuguese and Iberian property markets. Despite this being a starting point for most of the analysis and decision making in property portfolio construction, up to date and to the authors' knowledge, there is absolutely no research on this specific subject for these markets.Design/methodology/approachSubclass annual returns available from the 2005 IPD Iberian Digest were used in a cross‐sectional approach to test the segmentation structure of the IPD indexes. Two different analysis scopes were considered: the Portuguese market alone and the Iberian market as a whole, in a total of six segmentation structures tested for significance regarding total returns, capital returns, and income returns, thus resulting in 18 different evaluations using one and two factor analysis of variance tests.FindingsResults show that the structures based on sector differentiation are generally significant both for Portugal and within an Iberian context and that regional spread does not condition property returns in the periods under study. This supports the argument of sector diversification in both situations, similarly to previous findings for the UK market. Addressing return components, results show that only for income returns do most of the structures describe enough systematic patterns to be worth using, while capital gains seem to be less sensitive to segmentation factors.Originality/valueThis is the first paper regarding effectiveness of segment structures in the Portuguese and Iberian markets. Also the consideration and differentiation of the analysis for return components is original and found to be rather important, despite being apparently disregarded in related literature.

Strategic Industrial Policy and Latecomer Development: The What, the Why and the How

The global financial–economic crisis has led to a rethinking on the relative roles of state and markets. Public investments and industrial policies are no longer seen as interventions that inevitably lead to inefficient, uncompetitive and rent‐extracting forms of industrialisation. The present article looks at the content of (‘the what’), the justification for (‘the why’), and the adoption and implementation of (‘the how’) strategic industrial policy in relation to latecomer development. The aim of the article is to come up with some guiding principles on a strategic industrial policy, which supports a long‐term and robust expansion of productive activity through sectoral diversification, industrial deepening and industrial upgrading.

Firms in International Trade: Importers’ and Exporters’ Heterogeneity in Italian Manufacturing Industry

AbstractCombining data on structural characteristics and economic performance for a large sample of Italian firms with data on exporting and importing activity, we uncover evidence supporting recent theories on firm heterogeneity and international trade, together with some new facts. In particular, we find that importing is associated with substantial firm heterogeneity. First, we document that trade is more concentrated than employment and sales, and show that importing is even more concentrated than exporting both within sectors and along the sector‐ and country‐extensive margins. Second, while supporting the fact that firms involved in both are the best performers, we also find that firms involved only in importing activities perform better than those involved only in exporting. Our evidence suggests there is a strong self‐selection effect in the case of importers and the performance premia of internationalised firms correlate relatively more with the degree of geographical and sectoral diversification of imports.

Executive training exercises in small hotel marketing

Purpose – This paper's aim is to help hospitality management executives and graduate students to understand and to develop marketing expertise in the small hotel sector.Design/methodology/approach – Case studies for three hotels illustrate some major marketing challenges for the small hotel sector. Marketing activities are characterized by non‐marketing, inexpert marketing, implicit marketing, and sophisticated marketing categories. These categories are adapted specifically for the small hotel sector.Findings – Some hotels fall into a distinct category, while other hotels span multiple categories depending on their involvement level in various marketing activities (e.g. marketing intelligence, or promotion).Originality/value – Training exercises highlight specific marketing issues relevant to small independent hotels. Using the model, benchmarking suggestions are developed based on the hotel's marketing activity level. These exercises help practitioners to recognize this sector's diversity due to a wide s...

Democracy, Diversification and Growth Reversals

There exists convincing evidence that democratic countries are less volatile. This conclusion is usually reached with respect to volatility as measured by the standard deviation of annual growth rates of per capita GDP which includes both low and high frequency fluctuations. However, recently several studies have documented that significant changes in trend-growth, such as growth accelerations that last a decade or similar periods of negative growth, are quite common. In this paper we ask whether democracy also has a stabilizing effect on trend-volatility, i.e. whether more democratic countries experience fewer and milder swings of trend-growth. We find a common phenomenon medium term reversals of growth, that is periods of exceptionally high growth are, on average, followed by periods of exceptionally low growth, and vice versa. The propensity to experience large swings of trend growth is not uniform across countries-less democratic countries are more susceptible to it. When compared with factors commonly associated with volatility such as measures of quality of institutions, macroeconomic policies and financial development, we find that democracy is the most robust predictor of a country's propensity for growth reversals. We construct a model in which non-democracies have high barriers of entry for new firms. This leads to less sectoral diversification: fewer sectors are operated but more resources are channeled to each. In an uncertain environment this leads to infrequent but large growth accelerations when one of the few sectors operated is successful. However, these accelerations are followed by large declines when fortunes change in favor of the missing sectors. We present empirical evidence that confirms the positive relationship between democracy and industrial diversification.